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The San Diego Unified School District is accused of improperly diverting nearly $4.5 million in cafeteria funds to cover custodial and utility expenses, landing it on a shortlist of districts the state has ordered to repay $170 million to student meal programs.

San Diego officials are contesting the findings contained in a report released Wednesday by the Senate Office of Oversight and Outcomes.

District officials have told investigators that the district’s general fund previously loaned $18 million to the food-services department, and any improper fund use can count toward repayment of that loan.

The report’s findings covered the 2010-11 school year. It echoes a U-T Watchdog story last year, when former Chief Financial Officer Ron Little warned the school board that it might have to return $1 million to $3 million to the U.S. Department of Agriculture, which funds a portion of school cafeteria programs.

Previously

In a Sept. 27 letter to the California Department of Education, Superintendent Bill Kowba stated that the district “clearly understands that the methodology used” to validate the utility and custodial charges does “not meet program requirements.”

He added that since the charges “were incurred as direct support of the program, it is our hope that some acceptable validation process can be identified which will enable the district to charge the food service program for all or a portion thereof.”

On Wednesday, Kowba’s spokesman said the district is working with state education officials to develop a tracking and accounting system that complies with federal and state law.

More than two-thirds of San Diego’s 131,000 students qualify for free and reduced-price meals. Federal subsidies provided $44.2 million of the $55.8 million in cafeteria revenues in 2011-12. The state supplied another $3.9 million, according to the Senate report.

The state investigation documented several cases of school districts across California dipping into student meal funds and misappropriating millions of dollars. According to Senate investigators, education department officials have no idea how widespread the practice may be and fear they may have uncovered only a fraction of the ongoing abuse.

“The uncertainty reflects a challenged oversight system designed by the federal government, but carried out by a small, overmatched team of state examiners who are mostly nutritionists and dietitians, not accountants,” the report states.

The federal government requires schools to keep student meal funds in a separate account used only to operate or improve programs.

Senate investigators discovered “an oversight system that offers glaring opportunities to disregard rules so complex that districts easily can and often do contest violations as arguable interpretations of the law.”

Among the findings of the report:

• Los Angeles Unified School District inappropriately drained $158 million from its cafeteria fund over six years.

• The education department disallowed cafeteria fund charges at a dozen other districts, including San Diego, Santa Ana, San Francisco, Baldwin Park, Centinela Valley and Compton. Santa Ana, like San Diego, is challenging the department’s findings.

• Nearly all of the cafeteria fund problems documented by the state in recent years started with whistle-blowers, not state examiners. In other words, most of the districts were tripped up by inside informants after eluding state oversight, in some cases for years.